Media

John McCain Is Wrong: Unbundled Cable Won't Kill ESPN

Sen. John McCain (R-AZ) testifies before a Senate committee regarding unbundling cable services and the impact of changing technology, among other topics, on May 14

When Senator John McCain (R-Ariz.) took his mission to unbundle cable TV before the Commerce Committee earlier this month, he named ESPN as one of the main beneficiaries of the current system. “What many of these Americans are beginning to realize is that included in their cable bill is a charge of about $10 per month to just carry sports programming like ESPN, which cost nearly $5 a month,” McCain told the committee. That same day on Bloomberg TV, McCain took a swing at ESPN President John Skipper. “My only question would be,” he said, “do you have any trouble shaving in the morning looking at yourself in the mirror?”

Knocking ESPN, as McCain knows, is an American pastime almost on a par with watching it. When news came this week that Disney’s (DIS) profit machine was cutting up to 400 jobs, the doomsayers began to pile on. Yesterday Business Insiderspeculated that increased competition and rising costs for sports programming could spell the beginning of the end for ESPN’s run of dominance. If ESPN starts getting outbid on prime properties, wrote Tony Manfred, “it will become one of many [midsize] players in the live sports business, and it won’t be able to charge cable providers $5 per subscriber like it does now.”

Five bucks a month is a sexy, scandalous number, especially when you consider that ESPN reaches 98.5 million households. But there’s reason to believe that the network could easily be making more—and that the scourge of bundling might actually be holding it back.

ESPN gets an average of $5.15 per subscriber now. That’s $507 million per month and $6 billion per year. To get there without McCain’s 74-year-old widow neighbor, ESPN would need to collect more from its actual viewers. According to Nielsen numbers provided by Brad Adgate of Horizon Media, 68.1 million households tuned into ESPN at some point in the fourth quarter of 2012. That’s nearly 70 percent of the homes that get the channel. If each of those viewers were willing to pay about $7.50 à la carte, ESPN could maintain status quo.

It’s unlikely that every one of those 68.1 million would be ready to pay that price. Some, says Adgate, could have watched for just a few minutes. And October through December is a peak time for ESPN, with the NFL in season. Still, the network reached an average of 55.8 million households per month in that period, and 38.6 million per week. If every monthly viewer paid $9, or every weekly viewer paid $13, ESPN would hold steady. With Netflix streaming at $7.99 per month to 36 million subscribers, those numbers are not far-fetched. In any given minute, 986,000 households are watching ESPN.

The real free-riders in the bundling system are the dozens and dozens of unwatched channels fetching 50¢ a month. A Credit Suisse report (pdf) last fall on the state of play in cable showed that the average household gets 137 channels but watches only 33 each month. (This breaks out, according to the report, to 57¢ per channel you get, or $1.89 per channel you watch.) In most homes, ESPN is on the good side of that ledger. This makes it is as well-positioned as anybody to steal loose change from the likes of Logo, Fuse, and GardenTV and come out ahead.